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Catching up with the Keynesians
Ljungqvist,L. Uhlig,H.F.H.V.S.
Ljungqvist,L.
Uhlig,H.F.H.V.S.
Abstract
This paper examines the role for tax policies in productivity-shock driven economies with \catching-up-with-the-Joneses" utility functions.The optimal tax policy is shown to a ect the economy countercyclically via procyclical taxes, i.e., \cooling down" the economy with higher taxes when it is \overheating" in booms and \stimulating" the economy with lower taxes in recessions to keep consumption up.Thus, models with catching-up-with-the-Joneses utility functions call for traditional Keynesian demand management policies.Parameter values from Campbell and Cochrane (1995) are also used to illustrate that the necessary labor taxes can be very high, in the order of 50 percent.However, Campbell and Cochrane's nonlinear version of the aspiration level in the catching-up-with-the-Joneses preferences has the additional implication that consumption bunching can be welfare enhancing.
Description
Pagination: 20
Date
1996
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Volume Title
Publisher
Macroeconomics
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96.pdf
Adobe PDF, 238.96 KB
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Keywords
fiscal policy, business cycles, productivity, utility theory, SDG 8 - Decent Work and Economic Growth, SDG 17 - Partnerships for the Goals
Citation
Ljungqvist, L & Uhlig, H F H V S 1996 'Catching up with the Keynesians' CentER Discussion Paper, vol. 1996-96, Macroeconomics, Tilburg.
License
info:eu-repo/semantics/restrictedAccess